Crisil frowns at Cent Bank Home sticky assets

Central Bank of India might need to infuse capital into its housing finance arm Cent Bank Home Finance to write off the huge non performing assets (NPAs) in its home loan portfolio.

The percentage of NPAs to total disbursements under the class of home loans has shot up to double digit figures for a few of the housing financing entities. Cent Bank Home Finance's NPAs have doubled to 13.1 per cent in fiscal 2004 from 6.33 per cent in 2003.

While credit rating agency Crisil pointed out that the situation in the home loan market is not "alarming" today, the fact that many entities have gross NPAs close to 7-8 per cent could have negative implications for the industry in the long run.

Banks have over a number of years accumulated gross NPAs of 7 to 8 per cent on their overall credit books. The net NPAs are, however, less than three per cent.

For housing finance companies and banks to build up NPAs in such a short time in their retail books is alarming. "NPAs of 2 to 3 per cent is okay but anything beyond this ratio is not," said Crisil officials.

Crisil has put Cent Bank Home's fixed deposits on rating watch with negative implications. "The rating may be downgraded if adequate comfort on this front is not available," the rating agency said.

Crisil is in dialogue with Central Bank of India to obtain more clarity on its plan to address the deterioration in the asset quality and the consequent impact on the financial profile of Cent Bank Home Finance.

Infusion of capital could help since some of the bad loans could erode the capital base of Cent Home Finance, said Crisil officials.

As on March 31, 2004 Cent Home Finance reported a profit of Rs 3.2 crore on a total income of Rs 38.67 crore and a disbursement loan figure of Rs 98.6 crore.